Latency issue in this game...

[Misteyes]

The root of the issue actually is SE's netcode, as someone who's done games network programming (though I'm no expert on the subject - I only did it once and I did it badly).

There are a number of things that you can do to reduce the perceived effect of latency.

One practice (used in the Source engine), is that players perceive, and interact with, a game state that has already occurred. When a player lines up a shot in Counter Strike Source, they're actually shooting at where their target was a few frames ago. The server, however, knows how far behind they are, and where their target was at that time, so if they hit their target's past-self, their target is then informed that it was hit, in the present.

It would be ideal for a PvE game like this one, since only one side would be delayed - the players interact with the "past-selves" of the enemies, but the enemies (since they're automated) don't need to interact with the past-selves of the players.

I am fairly sure that this is how World of Warcraft manages to make PvE content seem lag-free, despite facing most of the same technical issues as this game does. (And why WoW's PvP does not have the same smoothness).